Mid-afternoon snack (ethics) investment, procedures, including, recently

LiquidAssets10

Work swiftly … Answers at 3:30 EST
Questions 1–6 relate to OPP
OPP is a regional investment firm that provides investment banking and brokerage services. The firm has a small investment research staff and has recently adopted the CFA Institute Research Objectivity Standards, including both the required and recommended policies and procedures.
Mwaka Makungo is a junior research analyst at OPP. The director of research has assigned Makungo to initiate coverage on a local biotechnology company, GolfTango. OPP owns and makes a market in GolfTango shares. OPP recently participated in the selling group, but was not an underwriter, for GolfTango’s initial public offering. Makungo was not personally involved in the sale of the IPO. As part of his research, Makungo meets with GolfTango’s director of investor relations, JeVon Kilgo.
Two weeks later, on 2 May, Makungo gives Kilgo a copy of his completed GolfTango report containing a “buy” recommendation, and asks Kilgo to correct any misstatements of fact before the report is released to OPP’s clients. The next morning, Makungo sends a copy of the GolfTango report to OPP’s director of research. Makungo also delivers the GolfTango report to OPP’s investment banking department, and requests a review of his report for any conflicts of interest before it is released to OPP’s clients on 5 May.
On 5 May, Makungo has lunch with Candy Puffer, one of the firm’s senior analysts. Puffer explains the CFA Institute Research Objectivity Standards and OPP’s policies and procedures regarding research reports and recommendations. Puffer states that OPP requires that reports be updated annually, or more frequently if there is substantive new information on the subject company. Also, because the research staff is small, OPP initiates coverage based on availability of the analytical staff and prioritizes companies to be covered on the basis of expected market attraction. Coverage is discontinued on the same basis, with a final report sent to clients if staff time permits.
After the appropriate waiting period, Makungo purchases GolfTango shares for his personal account. On 11 May, Makungo is one of the speakers at a biotechnology investment conference that is open to the public. By the time Makungo presents his report on GolfTango, the conference is behind schedule. To save time, Makungo summarizes his report and recommendation and does not make any disclosure statements. After the presentation, a conference participant requests a copy of his report. Makungo responds that the report is available to the audience for a nominal fee.
On 25 May, Makungo sells shares of GolfTango to pay for a wedding anniversary gift for his wife. In the future, Makungo expects that, based on OPP’s policy, he will receive large bonuses from increased investment banking fees and brokerage commissions attributable to his recommendations.
1. In giving his report to Kilgo, does Makungo comply with CFA Institute Research Objectivity Standards?
A. No.
B. Yes, because he submitted a copy to the director of research.
C. Yes, because he asked Kilgo to correct any misstatements of facts.
2. Does Makungo’s interaction with the investment banking department comply with CFA Institute Research Objectivity Standards?
A. Yes.
B. No, only because the investment banking department has been provided with the report containing the recommendation.
C. No, both because the investment banking department has been provided with the report containing the recommendation, and because he does not direct the report through the compliance department.
3. Do OPP’s policies regarding updating reports and discontinuing coverage, respectively, conform with CFA Institute Research Objectivity Standards?
Updating of Reports; Discontinuing Coverage
A. No No
B. No Yes
C. Yes No
4. To be in compliance with CFA Institute Research Objectivity Standards, Makungo must inform the conference audience about all of the following, except
A. OPP’s ownership of GolfTango shares.
B. OPP’s making a market in GolfTango shares.
C. OPP’s participation in the selling group for the public offering of GolfTango.
5. Does Makungo’s response to the conference participant’s question about the availability of the GolfTango report conform to CFA Institute Research Objectivity Standards?
A. Yes.
B. No, because OPP should provide its research reports only to its clients.
C. No, because OPP should provide research reports at no charge to all members of the audience.
6. Are Makungo’s sale of shares and OPP’s bonus policy, respectively, in conformity with CFA Institute Research Objectivity Standards?
Sale of Shares; Bonus Policy
A. No No
B. No Yes
C. Yes No

Muddahudda

C
C
C
C
A
A

ap0258

^^ Yeah, but you don’t see CFAI throwing advertising revenues Chad’s way.
Schweser on the other hand …
Habeas Corpus

Valores

Quarterly, quarterly, quarterly …
1. A is correct. The Standards prohibit sharing the entire report and the recommendation with the subject company.
2. C is correct. The Standards recommend that any contact with the investment banking department regarding a research report be documented in writing, directed through the compliance department, and limited only to verification of facts, such as conflicts of interest.
3. A is correct. The Standards recommend that reports and recommendations be updated at least quarterly and that when coverage of a subject company is being discontinued, firms should issue a final research report and recommendation.
4. C is correct. The Standards require disclosure only if the firm managed or co-managed an offering of GolfTango securities.
5. A is correct. The Standards recommend that an analyst making a public appearance to discuss a report should disclose to the audience that the report is available at a reasonable price.
6. A is correct. The Standards prohibit Makungo from trading in a manner that is contrary to the employee’s or firm’s most recent published recommendations. The Standards also prohibit direct linking of analyst compensation with investment banking activities.